Brexit isn’t going to plan Both the Left and Right are terrified of economic nationalism

Whatever one thinks of Brexit, these are developments that everyone should welcome.

But Britain wouldn’t be Britain without its moaning minnies. And there are two sets of people who aren’t happy: firstly, the hardcore Remainers for whom any assertion of the British national interest is pure jingoism; and secondly, the free market fundamentalists for whom any government intervention in the economy is a slippery slope to the Seventies, if not downright communism. 

There’s a lot going on to raise their hackles. The Nissan and Vauxhall deals won’t have happened without the Government fronting-up a portion of the overall investment. Last week, the ministers moved to sweep away the EU rules on state aid that stand in the way of further state subsidies. Ministers also decided to keep the trade restrictions that help protect the UK steel industry from cheap imports. And then there’s the National Security and Investment Bill, which was introduced last year to protect British companies from “malicious” foreign investors. 

Meanwhile, Labour is trying to get in on the Government’s act: Keir Starmer has unveiled a Buy British plan to bolster companies through public procurement. 

Critics on both Left and Right see any turn towards “economic nationalism” as a bad thing. But does it have to be?

If you believe in a borderless world in which we have no special loyalty to our compatriots, then any kind of nationalism is bad. But if, like most people, you do believe in the nation state — and that a national government should put its own citizens first — then what is wrong with nationalism in the economic sphere?

The most obvious answer is that free trade is a good thing — and that Britain should not disrupt the level playing field of international competition. It’s a nice theory, but it ignores the fact that the playing field is anything but level. British industry is fighting an uphill battle, because our competitors have no qualms about tipping the terms of trade in their favour. Just look at export-led economies like Germany and China.

Both of these countries benefit from rigged exchange rates. In Germany this is achieved through the single currency. If the Deutschmark were still around, you can bet that it would be trading at a much higher value against the Pound than the Euro does. This would make German exports a lot less competitive. As for China, it builds up enormous foreign currency reserves, while restricting access to its own currency. The result is a mismatch in demand that skews the exchange rate to the advantage of Chinese exporters.

There are other weapons in the armoury of the economic nationalist. For instance, EU figures show that, as a percentage of GDP, state aid to German industry is more than three times what it is Britain. Subsidy levels are also high in countries such as Hungary, Czechia and Poland — all of them key export markets and cheap labour suppliers for German industry. China subsidises its industries too — through direct support, access to low interest loans and crazy levels of infrastructure spending. It also protects its businesses from foreign competition while enjoying open access to western markets. 

So when the economic globalists talk about free trade, they don’t mean free trade at all. They mean that we should we leave ourselves wide open to the rampant economic nationalism of other countries. 

But so what? If these countries want to sell us their stuff at a knockdown price, then don’t we benefit? Let the Germans and Chinese do what they do best, while we concentrate on what we do best. That way we’ll all get richer. 

Except that we haven’t got richer. Not lately. The UK in particular has suffered from more than a decade of low growth. In terms of GDP per head we are bottom of the league of north European countries (a comparison that was gleefully seized upon by the SNP to make the case for Scottish independence). As for the rate of productivity improvement — on which all prosperity ultimately depends — we’re doing the worst out of the biggest western economies.

The free marketeers have got some explaining to do. This country has done more than most to follow their ideological prescriptions. We’ve thrown open our borders to the flow of goods, services, capital and labour. We’ve allowed foreign interests to buy up our companies and our property. Our public procurement policies emphasise value for money not buying British. For decades, we barely bothered with an industrial policy — and left business investment up to the private sector. And furthermore we’ve encouraged that investment with lower taxes and lighter regulation. 

Why, then, aren’t we more productive?

But let’s not just look at the British economy in the abstract. We must also count the human cost. A low-skill low-wage economy comes at a terrible price to pride and hope. That’s especially true when these patterns of work define entire communities and regions. We should, of course, be thankful that we have a job-creating economy, but quality matters as well as quantity. 

The fact is that a policy of economic disarmament — of leaving Britain undefended against the economic nationalism of our competitors — has only delivered prosperity and wellbeing to some of our people. And that is not enough. British voters are demanding more, which is why our Government has tentatively embarked upon a policy of economic rearmament. Above all, this means doing what it takes to build up industries that provide high quality jobs. 

The sceptics will argue that the British economy is perfectly capable of doing that already. For instance, Julian Jessop in the Telegraph holds up the example of the UK’s tech sector. Britain is now home to more than a hundred tech companies worth more $1 billion. This is “a larger number than the rest of the Europe combined”, he says. No need for continental-style industrial policies, then.

Except that key centres of innovation — like London’s Silicon Roundabout — have benefited greatly from government programmes. Public funds have been been ploughed into the capital’s infrastructure — and also into Britain’s world-beating universities. The achievements of our tech entrepreneurs should be celebrated, but their industry has been supplied by the state with the vital resources of connectivity and brainpower.

There’s no reason not to give other strategically-important industries what they need to succeed too. What some industries require may be more specialised than others but the principle is the same. If individual companies can’t bear all the costs and risks involved, then there’s a case for government shouldering some of the burden.

Since the public purse is not bottomless, funds should be deployed where they will make the most difference. However, unlike a private investor, government has the ability and the duty to consider more than just the financial bottom line. Above all, there is goal of providing satisfying, well-paid work not just in some places but throughout the nation. 

In the end, that is what economic nationalism comes down to: economics as if every Briton matters. 

---

Peter Franklin is Associate Editor of UnHerd. He was previously a policy advisor and speechwriter on environmental and social issues.

peterfranklin_